Every year, millions of people across the country look for a new home. Some move to the city for work, others move out to the suburbs to raise families. While many people are happy to rent for years as they adventure to see the world one rental property at a time. But eventually you’ll be ready to settle down, build a career in a single location and possibly raise a family. Unfortunately, if your youth was wild or off-the-grid, or if past financial hardship still haunts your credit score, it can be hard to get a fair mortgage for a home you love. For those of you looking to find a new home in central California or anywhere else in the U.S., you can use the time spent saving up your down payment to build your credit, and we have a few tips to help you build momentum.
Starting Without a Credit Score
One of the biggest problems with the modern credit score system is the fact that people with zero credit history also have no credit score and are most often treated as the same way as people with low credit scores. Many young people enter the credit world with an enormous amount of fresh student debt hanging above their heads and a small personal credit card limit. Even though you may be ready to start gaining equity on your first home, it can be difficult to get a mortgage with no credit or early debt. For those fortunate enough to start without debt but still have no credit, the good news is your score will rise quickly with the same technique.
Get a Credit Card with Good Rewards
Credit cards are the fastest and most efficient way to live your life, pay your bills, build a credit score and get a little reward all at the same time. All you have to do is use them correctly. One of the best things about credit cards is the variety of reward options. Most people look for the best possible cash back deal and a low interest rate. However, don’t forget to look for specialized credit cards that offer rewards you will use on a daily or monthly basis. Cards from local stores or regional banks might get you discounts on groceries or gas at nearby venues, and some international credit cards offer deals you may use like restaurant, travel, grocery or specialty offers. Find at least one card deal that works for your lifestyle and prepare to use it often.
Fill and Empty
The goal of this exercise is to build your credit score, which means creating a positive history of good financial decisions. This is what loan assessors will be looking for when deciding what kind of loan you qualify for – whether you pay your bills on time and can handle a line of credit responsibly. The natural answer is simply to cycle your monthly paycheck through the credit card, or at least some of it every month. Set a monthly budget then use the card for small to medium purchases like groceries, gas, snacks and errands, favoring whatever items will get you deals on the card you chose. In some situations, you can also route bills and rent through a card as well. Remember to never exceed your income and account for your monthly savings.
As soon as you get paid, pay off the card completely every month. This allows you immediately cycle your income into a credit score, coming out having spent the exact same amount as you would have otherwise. Anything left in your bank account can be dropped in your savings or used to pay off debts faster as the credit card becomes your ‘action’ form of payment.
Let it Slide One Month
One month out of every year, don’t pay off the complete balance and let a little bit of month-to-month interest accrue. This gives the credit card company its due and shakes up your routine a little bit. If you have the slide in your plans, it also makes forgetting for one very distracting month not a big deal.
Building your credit score takes time, but it’s also incredibly worthwhile for more purposes than just your mortgage. A higher credit score means larger credit cards, better offers on car loans and even better deals on some travel services. To improve your prospects for a good mortgage, try this tactic for a few months and keep an eye on your credit score.
Are you looking for a new home in the San Joaquin Valley or Bakersfield? SJV Homes now has open for sale 10 communities with a combined 845 single-family homes. If you would like more information, sign up for our interest list here.